04/08/2013

Property Insurance Coverage and Estate Planning: It’s All in the Details

When it comes to the growing use of
sophisticated wealth transfer mechanisms like trusts and limited liability
companies by individuals, the details include complicated insurance
considerations that must be expeditiously addressed. If not, the devil—in this
case a potentially catastrophic loss of coverage—might make an unexpected
visit.

Estate planning is full of
twists and turns as there are many moving parts that change over time. And when
managing these changes between all moving parts involved, one must be sure to
mind the details …or else suffer the consequences.

A recent article in AdvisorOne provides a good reminder of
the need to take care of the details when constructing your estate plan. The
article, titled “Trusts and LLCs: Smart Ways to Transfer
Wealth and Risk, but Mind the Details,” uses the example of trusts and
LLCs to illustrate how even the best intended planning can go astray. These
common entities are often used by estate planning attorneys to protect client
assets from probate and creditors, and they are also used to transfer the
assets to loved ones after death.

Unfortunately, unless the assets
are properly retitled, the full benefit of the planning may not be realized. In
addition, unless various insurance carriers are notified that the trust or LLC
is now under a new owner (or additional insured), there may be challenges in
the event of a future claim. Example: if the family home is transferred into a
Qualified Personal Residence Trust (QPRT), but the property casualty policy is
not updated to reflect this transfer.

Insurance is underwritten with
the listed owner in mind. If you transfer an insured asset to a legal entity,
then you might invalidate the insurance coverage.

The above-mentioned article is a
good reminder that estate planning is never a “one and done” deal. Maybe this is
a good time to review your assets, estate planning and insurance coverage with
your estate planning attorney.